Beyond Magnuson-Moss and Kodak—“Right to Repair” As an Antitrust Issue

The “right to repair”—a product purchaser’s right to use parts or get service from someone besides the original product seller—is both an old and new antitrust concept. Old because the anti-tying provision of the Magnuson-Moss Warranty Act of 1975 barred conditioning a warranty on use of authorized parts or service and because the Supreme Court’s 1992 decision in Eastman Kodak Co. v. Image Technical Servs., Inc.^[1] discussed when aftermarket parts restrictions could harm competition in an aftermarket. New because until recently neither the agencies nor private plaintiffs showed much interest in these theories and Kodak frequently served as a checklist for dismissal. But now there is antitrust energy behind the right to repair—advocacy groups talk of a “right to repair movement,”^[2] the FTC is dusting off Magnuson-Moss,^[3] and plaintiffs have filed and withstood motions to dismiss in single-brand aftermarket cases against Tesla and John Deere.

This article discusses the past, present, and future of right to repair claims, closing with

a discussion of the uncertain future for manufacturers now that some courts may not be following the old understanding that single-brand aftermarket claims should rarely pass muster.

First some terminology: a “primary market” or a “foremarket” refers to competition for the initial sale of a product (say the sale of a tractor or an electric vehicle); an “aftermarket” refers to competition for a subsequent sale related to the product (say the sale of tools to repair the tractor or the electric vehicle); a “single-brand market” is a market (almost always an aftermarket) limited to a single-brand (say tools to repair one brand of tractor or electric vehicle); an “ISO” is an “independent service organization,” a term sometimes used to describe a company who seeks to provide service in an aftermarket and is independent of the seller in the foremarket; and, finally,“R2R” is the new shorthand for right to repair used in social media and elsewhere.

Magnuson-Moss

Congress passed the Magnuson^[4]-Moss Warranty Act in 1975. This law governs many aspects of warranties, but the one relevant here is the “anti-tying” provision, making it illegal to condition a warranty “on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name….”^[5] Put differently, a company cannot void a warranty automatically simply because a consumer uses unauthorized parts or services.

FTC guidance identifies examples of unlawful attempts to limit warranties based on use of authorized parts:

“To keep your new Plenum Brand Vacuum Cleaner warranty in effect, you must use genuine Plenum Brand Filter Bags. Failure to have scheduled maintenance performed, at your expense, by the Great American Maintenance Company, Inc., voids this warranty.”

and

“This limited warranty shall not apply if the warranty seal has been broken, removed, erased, defaced, altered, or is otherwise illegible,” where a device cannot be repaired without such effects.^[6]

In theory, a company can condition a warranty on use of authorized parts if the parts are provided free or if the warrantor receives a waiver from the FTC, but few companies choose those options. Instead, companies with able antitrust counsel will say that the warranty does not apply to damage caused by use of unauthorized parts. The FTC’s guidance provides that the following is a permissible provision:

Necessary maintenance or repairs on your AudioMundo Stereo System can be performed by any company. Damage caused to the AudioMundo Stereo System by you or any non-authorized third party, however, may void this warranty.^[7]

The rule is relatively simple to apply: a company cannot take away my warranty simply because I crack open the back of my computer with a butter knife and use rubber cement to stick some chips together; but, when/if my homemade solution damages my computer, they can take away my warranty because my use of unauthorized parts caused damage.

Magnuson-Moss, like right to repair in general, is both a consumer protection and antitrust issue. But the ideas behind Magnuson-Moss originate from antitrust. First is the idea that, after the sale of an original product, there can be a separate market for the sale of service and parts for the original product. Second is the idea that it is anti-competitive to tie products in separate markets together.

Kodak—Lock-In Because of Lack of Knowledge Required

The second pillar of right to repair is the Supreme Court’s decision in Kodak. This decision applied the same aftermarket and anti-tying concepts behind Magnuson-Moss to Sherman Act claims. Kodak involved sales of copiers and restrictions on how those copiers could be repaired. Kodak began refusing to sell repair parts for its copiers to independent service organizations—so only authorized Kodak repair shops could repair Kodak copiers. Disgruntled ISOs brought Section 1 and Section 2 claims against Kodak.^[8]

The district court granted summary judgment to Kodak, saying that a manufacturer has a “right to select its customers and to refuse to sell to others” and that Kodak’s “natural monopoly over the market for parts it sells under its name [imposed] no duty on it to sell to plaintiffs.”^[9] The district court emphasized that there was competition in the market for copiers (from Xerox and others) and accepted the idea that a company facing competition in a primary market could impose limitations on its own products in an aftermarket. The Ninth Circuit reversed and remanded, emphasizing the predicament of consumers who purchased an expensive copier and had no options for parts.^[10]

The Supreme Court agreed with the Ninth Circuit that the district court should not have granted summary judgment.^[11] The majority opinion rejected Kodak’s argument that there could not be liability for restrictions in the aftermarket if the defendant lacked market power in the foremarket.^[12] The majority emphasized the possibility that, even though there was competition in the foremarket for equipment, a plaintiff might be able to provide evidence of harm to competition in the aftermarket.

Justice Scalia’s dissent warned that the majority’s opinion would lead to a “torrent” of aftermarket claims.^[13] Later courts looked to the dissent to find a way to stop that torrent:

a rule that if a consumer knows about the aftermarket restriction when making the purchase in the primary market, there is no antitrust claim. Justice Scalia had noted, somewhat in passing, that Kodak had changed its policy and had not always barred consumers from turning to ISOs for repair.^[14] He wrote that Kodak would be immune from per se scrutiny if “Kodak—from the date of its market entry—consistently pursued an announced policy of limiting parts sales in the manner alleged in this case, so that customers bought with the knowledge that aftermarket support could be obtained only from Kodak.”^[15]

Following Kodak, antitrust lawyers pushed the ideas in Justice Scalia’s dissent to the forefront.^[16] The lesson of Kodak was that pre-purchase clarity about post-purchase repair restrictions barred antitrust claims based on those restrictions.^[17] There only could be a single-brand aftermarket if there was “lock in” so that “competition in the foremarket cannot ‘discipline’ [competition in] the aftermarkets.”^[18] Put differently, although the Supreme Court’s decision identified circumstances in which a single-brand aftermarket claims could work, many later decisions cited Kodak to explain why single-brand aftermarket claims generally did not work.

In the Ninth Circuit, the two most important post-Kodak decisions on single-brand aftermarkets, Newcal Indus., Inc. v. IKON Office Solution^[19] and Epic Games v. Apple,^[20] both emphasized the narrow path available to plaintiffs asserting such claims. Newcal, explaining Kodak, dictated that courts should consider whether initial purchasers fairly accepted aftermarket limitations—either because they entered into a contract that limited aftermarket choice or had knowledge of those limitations.^[21] Newcal was another case about copiers. Epic involved markets more familiar to middle-schoolers than office managers—payments on mobile devices for features on video games like Fortnite. Epic then is not technically a right to repair case, although the foremarket and aftermarket principles are the same.

Epic stated a rule, later followed in Tesla, that:

to establish a single-brand aftermarket, a plaintiff must show: (1) the challenged aftermarket restrictions are “not generally known” when consumers make their foremarket purchase; (2) “significant” information costs prevent accurate life-cycle pricing; (3) “significant” monetary or non-monetary switching costs exist; and (4) general market-definition principles regarding cross-elasticity of demand do not undermine the proposed single-brand market.^[22]

The district court had found that plaintiffs could not establish these factors, also warning that single-brand markets are “extremely rare” and “[i]t is an understatement to say that single-brand markets are disfavored.”^[23]

The New Kodak Cases—More Lenient on Lock-In?

Two important Kodak right to repair decisions came out last November—one in a case against Tesla and the second in a case against John Deere. And while there certainly was antitrust and right to repair momentum behind these cases, there was not much post-Kodak authority to support the single-brand aftermarket theories alleged in those cases. Skepticism for those claims remained at Justice Scalia levels.

The first decision came in a case in the Northern District of California involved Teslas. Plaintiffs claimed that Tesla improperly required repairs with Tesla parts and at Tesla service centers. The court granted Tesla’s motion to dismiss on several grounds, including that plaintiffs had not alleged single-brand aftermarkets for Tesla repair services or compatible parts under Kodak. The court found that plaintiffs had to allege that the aftermarket restrictions “are not generally known” and concluded that plaintiffs had not met this requirement.

The Northern District of California rejected the Kodak claim because plaintiffs failed to allege sufficiently that Tesla owners did not know about the aftermarket restrictions. The court wrote that:

[N]owhere do Plaintiffs allege that consumers are in fact unaware of the supposedly supracompetitive prices and exorbitant wait times in the relevant aftermarkets. [] To the contrary, they allege that such problems are “widely documented.” [] Plaintiffs thus fail to allege that any restrictions are not generally known.^[24]

The district court noted that plaintiffs had alleged that Tesla misled them about the available repairs but that consumer confusion did not matter because there was widespread knowledge about issues about Tesla’s repair limitations.^[25] The court did allow plaintiffs to file a second amended complaint, with the briefing on the motion to dismiss that complaint taking place in 2024. Justice Scalia’s dam still held back the torrent.

Ten days after the first Tesla decision, a crack in the dam appeared. The Northern District of Illinois allowed a Kodak claim to proceed in a case involving John Deere tractors. Plaintiffs claimed that John Deere improperly limited access to repair software and tools—with a focus on an aftermarket for repair services for John Deere tractors. Plaintiffs alleged that Deere “designed its Tractors so that both the diagnosis and the completion of a repair frequently requires [Deere] software tools and [other Dealership-only] resources.”^[26]

Deere moved for judgment on the pleadings. Among its many arguments, Deere argued that there could not be a single-brand aftermarket because consumers knew about aftermarket restrictions when making purchases in the primary market. Deere argued that “absent some sort of lock-in problem, courts presume ‘competition in the initial market suffices to discipline anticompetitive practices in the aftermarkets.’”^[27] Deere argued that there was no lock-in because Deere had not made a policy change and had not hidden its repair policies.

The Department of Justice filed an amicus brief arguing that Deere was wrong about single-brand aftermarket claims. The government said that full information—“no deception or surprise”—in the primary market did not absolutely bar claims based on disclosed restrictions:

Deere would have the Court presume that, in every other circumstance, a competitive foremarket (as Deere argues the tractor market to be) necessarily shields consumers from any possible market power or monopoly power in a single-brand aftermarket (such as the market for Deere repair services). Deere is wrong. . . . Deere’s proposed presumption contravenes the Supreme Court’s decision in Kodak and the weight of circuit court authority. Although deception or surprise can be relevant to a proper Kodak analysis, they are not alone dispositive or required.^[28]

The district court, in a lengthy opinion, held that plaintiffs had stated a Kodak claim. The court found that plaintiffs had alleged that Deere had misrepresented its repair policies: “The reasonable inference from these allegations is that Deere—by itself or through its agents—repeatedly made public statements that purchasers could make repairs to their own Tractors but the reality was that they couldn’t.”^[29] The court concluded that these misrepresentations constituted a policy change or “bait-and-switch” similar to what happened in Kodak.^[30]

The court also found a second-basis for lock-in, concluding that plaintiffs had sufficiently alleged a lack of information.^[31] The lack of information finding based in part on the alleged misrepresentations by Deere about the scope of available repair services—the Court in the section on lack of information referred back to its finding on the “change of policy/bait-and-switch theory” and also the allegations in “totality.”^[32] In sum, Deere made extensive disclosures about access to repair but, rather than protect it from a Kodak claim, these disclosures became the basis for it to face a Kodak claim because the disclosures were allegedly inaccurate.

Not surprisingly, the plaintiffs in Tesla tried to take advantage of the John Deere ruling in the briefing on the motion to dismiss the second amended complaint. Their briefs cited the Northern District of Illinois’s decision repeatedly for the proposition that consumer confusion about access about aftermarket restrictions suffice to state a Kodak claim.

The Northern District of California issued its ruling in June 2024, this time denying the motion to dismiss and allowing plaintiffs’ right to repair claims to continue. Another crack. The decision recited the history of Kodak before settling on the Ninth Circuit’s decision in Epic Games as summarizing the applicable law. The Northern District repeated the standard from Epic for Kodak single-brand aftermarket claims, requiring that the aftermarket restrictions are “not generally known,” significant information costs, significant switching costs, and consistency with general market-definition principles.^[33] The court added that these factors would be less important in cases in which the defendant had market power in the foremarket.^[34] The court then concluded that plaintiffs had pleaded that Tesla had market power in a foremarket for EVs. But the court found that, even if plaintiffs had not alleged market power in the foremarket, plaintiffs had met all four Epic Games factors.

The court’s key finding was that—contrary to what it concluded about the prior complaint—plaintiffs had alleged that they that were unaware of Tesla’s restrictions on repair. Tesla had argued that the court’s initial decision recognized that consumers were aware of the restrictions and therefore there was no bait-and-switch. The court nevertheless concluded that “Based on evidence cited by Plaintiffs, it is plausible that a significant portion of Tesla purchasers were unaware of their vehicles’ forthcoming service and repair issues at the time of purchase.”^[35] The court credited plaintiffs with providing “an assortment of evidence that makes a plausible showing that consumers were generally unaware of the aftermarket restrictions.”^[36]

The court noted that Tesla owners had experienced “unexpected headaches”^[37] with their cars as evidence of lack of knowledge—although it is probably always the case that plaintiffs filing claims based on aftermarket restrictions suffered headaches. And the court said that Tesla’s statements about the car’s reliability also misled consumers into thinking that Teslas require little maintenance^[38]—although every seller makes statements about the reliability of their product. The court made findings as to each part of the Newcal/Epic test—not just “generally unaware,” but also “significant information costs,” and “high switching costs”—but the thrust of each part of the analysis was that some customers might not have fully understood aftermarket limitations at the time of purchase. In other words, the Tesla court, like the John Deere court, concluding that plausible allegations of consumer confusion about aftermarket repair restrictions was sufficient to state a claim.

These new decisions arguably expand Kodak claims beyond the Supreme Court’s initial boundaries. Single-brand aftermarket claims, like unilateral refusal to deal claims or predatory pricing claims, have long been near the edges of antitrust—unlikely even to get past the pleadings stage. That might be changing, at least for some judges. Accepting the idea that consumer confusion about aftermarkets is comparable to a bait and switch change in policy seems to tilt the playing field in favor of plaintiffs. Justice Scalia warned against a regime in which claims that “may have implicated truth-in-advertising or other consumer protection concerns” would also trigger antitrust laws. Some practitioners might see the recent decisions allowing single-brand claims based on concerns about misleading statements to consumers as improperly mixing consumer protection and antitrust, just as Justice Scalia feared.

Of course, these are just two fact-specific decisions from two district court in different circuits, and categorizing the allegations as describing mere consumer confusion might go too far. Certainly, future defendants will try to limit these cases to very narrow facts—for instance that in Tesla, the court found that plaintiffs had alleged Tesla’s market power in an EV foremarket and therefore lack of general knowledge was less important. Tesla and John Deere may have strong arguments in the pending cases against any liability.

Where Right to Repair Goes Now

The Tesla and John Deere cases likely will encourage more single-brand aftermarket claims.^[39] What is less certain is whether courts will see Tesla and John Deere as like cases persuasively clarifying Kodak in a plaintiff-friendly matter or as cases wrongly decided or limited to the particular facts and allegations. And it is of course more than possible that one or both of Tesla or John Deere prevail at class certification, summary judgment, or trial. It is one thing to conclude a complaint, filed in a right to repair friendly climate, survives Twombly, it is quite another for those allegations to hold up through summary judgment and trial.^[40]

Another path for right to repair expansion could come through legislation. The recent right to repair movement arguably began as a push for Apple to allow greater access to iPhones. iPhone owners wanted to be able to go to mom-and-pop repair shops to fix their phones but Apple opposed legislation that would open the doors to these shops. Apple opposed various “fair repair” acts, arguing that requiring independent repair shops to have access to certain iPhone features would threaten consumer security and privacy.^[41] Repair advocates criticized Apple for its stance and Apple now has supported some state right to repair laws, including California’s law.^[42]

Repair advocates and state legislatures recently have broadened their right to repair push. Massachusetts passed aggressive automobile-specific legislation giving drivers and repair shops access to almost all mechanical data.^[43] There is ongoing litigation about the scope of that law, but there is no doubt that the move in Massachusetts will be towards more consumer access. Other states pushing on R2R include Colorado, which passed an agriculture R2R law,^[44] and California, which passed an electronics R2R law.^[45]

At the federal level, Senator Klobuchar has reintroduced legislation that would dramatically change the Sherman and Clayton Acts, expanding the definition of “exclusionary conduct” to mean any conduct that “materially disadvantages 1 or more actual or potential competitors” or “tends to foreclose or limit the ability of 1 or more actual or potential competitors to compete.” If enacted, this language (and other parts of the legislation) arguably would force courts to start from scratch, throwing out Kodak in favor of new analysis that could be even more favorable to single-brand aftermarket claims.

This potential for change puts manufacturers in a pickle. Up until recently, companies faced very little risk if they followed two simple R2R rules: (1) do not automatically void a warranty based on use of unauthorized part or service and (2) disclose any aftermarket limitations. Those rules still apply but there now is greater risk of facing enforcement activity or litigation even if a company follows those rules. The recent Kodak decisions raise the unsettling possibility that no good deed goes unpunished: by providing more frequent, accessible, and detailed disclosures of aftermarket repair alternatives, companies will give plaintiffs more opportunities to claim that there is consumer confusion after the precise scope of those limitations. The new R2R energy also arguably understates the very legitimate and pro-competitive reasons manufacturers may have for imposing some aftermarket restrictions—including security and privacy.